What you should know ahead of Nike’s analyst meeting

By Andria Cheng

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Nike

Ahead of Nike’s analyst meeting Wednesday, its first in over two years, the biggest question on investors’ minds is what the company
/quotes/zigman/235840/quotes/nls/nkeNKE can do to engineer its next growth spurt.

It’s especially keen on investors’ minds because shares recently jumped to a record high after the sneaker giant, a new member of the Dow Jones Industrial Average, delivered a rosier-than-expected fiscal first quarter result on continued sales gains.

“We expect that management will both update its existing FY 15 (May 2015) plan and also provide a detailed, fresh view of the longer-term runway,” said Deutsche Bank analyst Dave Weiner, who rates the stock a buy with an $85 price target. Nike “remains a top way to plan a global recovery.”

The analyst said coming on the heels of the company’s gross margin upside, investors will see if the company can continue to expand its margin and how factors including price hikes, raw material costs and product innovation play into the mix. He added if the company can leverage its Flyknit technology across different product categories, that can provide meaningful long-term “margin tailwinds.”

Discussions around the company’s long-term opportunities in emerging markets such as Brazil, Russia and India also will be an investor focus, as will additional color on what Nike is doing to turn around its key growth market, China, he said. China sales minus currency impact have declined over the past four quarters.

The analyst said he expects Nike to stand by its long-term target of sales rising in the high single digit per year with per-share profit rising in the mid-teens percentage.

Analyst meetings usually have the potential to move stocks. Nike’s stock jumped 10% during its June 2011 analyst meeting, UBS analyst Michael Binetti said, adding “momentum from (first-quarter) earnings should translate to a very positive analyst day outlook.” He has an $82 price target on the stock.

The analyst said he wants to hear from management regarding its plan to continue double-digit growth in North America, adding Nike has added another 2 to 3 percentage points to its U.S. market share on top of a share gain of as much as 6 percentage points a year earlier.

UBS’s Binetti said investors also want to hear whether recent gains in Western Europe, including a 12% rise in futures orders, signals a real turnaround in the region. He also said that if the region, currently about 7 percentage points below its peak margin level, can show signs of U.S.-like sustainable profit growth, a return to prior margin peaks alone could add at least 20 cents a share to per-share profit in coming years.

Analysts said Nike also has a big upside from increased focus on its women’s business.

Meanwhile, the company’s plans for its $1.45 billion Converse business, with a 29% margin well above Nike brand’s 19%, also will be closely watched, Binetti said.

“We wonder if Nike would ever consider a financial transaction to extract the value of the Converse brand,” Binetti said.

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Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.